We propose a model of volatility tail behavior, in which the pricing measure dominates the physical measure in both … tails of the volatility distribution and, hence, the derived pricing kernel exhibits an increasing and decreasing region in … the volatility dimension. The model features investors who have heterogeneity in beliefs about volatility outcomes, and …

preferences affect future spot price volatility. Consistent with our expectation, we find that preferences for lotteries by call … option traders directly affect future volatility in the underlying asset …

We propose a model of volatility tail behavior, in which investors display aversion to both low volatility and high … volatility states, and, hence, the derived pricing kernel exhibits an increasing and decreasing region in the volatility … dimension. The model features investors who have heterogeneity in beliefs about volatility outcomes, and maximize their utility …

both conditional volatility and skewness. This has first order implications for managing risks associated with momentum … investing: an adjusted momentum portfolio which hedges in real time for both volatility and skewness risk outperforms benchmark … constant and dynamic volatility-managed momentum strategies. This result holds for different levels of transaction costs and …